Gold is Not Overbought - Don't Kid Yourself
In order to continue our conversation about Gold from earlier in the week, I'd like to share a few more historic charts of the Yellow Metal. I think the first one really puts all of this overbought talk into context. According to Chris Verrone, lead technical analyst at Strategas Research Partners, in 1981 the price of Gold peaked at about 130% above its 200-day moving average. Today, the price of Gold trades just around 13% above that very same 200-day average (Gold ~$1770 & 200-Day ~ $1572). Check out the chart below via CNBC:
(Error: top left of chart should say "130% Above 200-Day MA = Bubble")
The second chart shows the direction of the underlying trend as well as the upward-sloping 200-Day Moving Average (40-Week) supporting the price action. Verrone wisely explains that as a Chartist he believes that, "there is wisdom in price, and wisdom in numbers". Gold has not put in a single data point below its 200-day moving average in over 3 years. Verrone goes on to say that this suggests, "The trend is healthy and trend is still in that bull formation that we like to see":
I tend to agree with Chris Verrone when he says that he would be cautious if the 200-day moving average would begin to flatten out. The upward-slope of this particular smoothing mechanism is key here.
See Also: Dow/Gold Ratio Long Term and Dow/Gold Ratio Short Term
Tags: $GLD $GC_F
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